Norcros plc (NXR) Earnings Call Transcript & Summary

All right. Let's get cracking. We're very pleased today to welcome you all to today's webinar from Norcros, where they're going to cover the first half results to the 30th of September and also talk a little bit about their ambitions and, of course, the marketplace. In terms of admin for this Zoom call, which I'm sure you're all familiar with. First of all, the presentation is being recorded. So don't worry if you miss parts of it, you can watch it again. We will try and address everybody's questions after the formal presentation. So please use the Zoom question button to submit them. We've had quite a few already pass through. And in terms of the exact forecasts that the Company can't talk about, I would remind everybody that on the equity development side, there is quite a lot of research written by our analyst, Toby Thorrington, including a report written last week after these results. So there you can hear into the future. So we are delighted to welcome back CEO, Thomas Willcocks; and CFO, James Eyre. And I shall now pass over to Thomas to start proceedings.

Well, good morning, everybody. It's great to be back on this platform talking to all of you. To those who've been on before, welcome back and to anybody that's new, good to have you on. And maybe just a reminder before we crack into the results, for those of you who might not know Norcros that well and might be having a first look. Norcros is the largest designer and supplier of branded bathroom products in the U.K. and Ireland with a #2 position in South Africa. And that design piece is really important. We're not a distributor. We design our own products and supply those through partners into the mid-premium market segments that we operate in. Strong set of results in H1 for Norcros, in line with our historical performance where we are less cyclical and have a proven track record of performing through the cycle. Small like-for-like revenue growth across the 2 regions with a particularly strong performance in the U.K., where we've taken share, and we grew like-for-like revenue 0.9%. The difference between like-for-like and our reported revenue really, James will touch on, but that is to do with the disposal of the Johnson Tiles business in the U.K. So strong performance in the U.K. The South African macro, for those of you who follow South Africa, has stabilized. We've had some good elections. The energy challenges have subsided. Interest rates remain high and the recovery will be a little bit slower there, but good to see stabilizing markets in South Africa. We continue to take share, both in RMI and the new house build sector where we have leading positions, and we are extremely well placed for when the market does eventually recover. But I think through these results, you can see that we have a number of self-help levers that we continue to implement against that drive share growth in the business. We really focus on 4 key strategic pillars. The first being portfolio development. The second being ahead of market organic growth, which we achieved through cross-selling across our platform, very strong new product development focus, and exceptional service levels. Our third leg is really our operational excellence, and this is where we leverage our scale to provide a more efficient and more professional service to customers. It's a great strength of ours. And the fourth piece is really around ESG, which is a broad cover of a number of big areas and important areas, and it's quite often just condensed into carbon and net zero transitions. It is a key part of our business across all parts of ESG, but really pleased to talk about the investment in sustainable products and the progress being made in terms of our portfolio there. The balance sheet remains really strong with leverage at 1x underlying EBITDA. We increased the dividend at half year, again, reflecting confidence in our full year prospects. And we expect the full year numbers to demonstrate progress towards our medium-term targets that we published at our Capital Markets Day. If we move to Slide 4, please. So looking at the 2 business regions, as I said, very strong performance in the U.K. with like-for-like revenue growth in a market that's definitely negative, and it's quite easy to compare that performance against a number of our listed peers. Very strong performance on NPD cross-selling. We'll talk a bit more about the operational excellence projects later and really pleased to be awarded the King's Award for Enterprise for Sustainable Development at Triton, again, showing that we don't just talk about ESG, but have been implementing and growing that as part of our business for some time. On the South African side, you will see that the revenue was marginally lower on a like-for-like basis. And profit a bit further down, and James will talk to that. We have a slightly less flexible cost base in South Africa with a large retail component. But still in tough conditions, a strong performance. We have a really, really strong management team out in South Africa. They understand the market well. And as the market recovers, we benefit from that. So really pleased with the work our team are doing in South Africa. I'm going to ask James just to run through maybe just some of the nuances of the H1 numbers.

Yes. Thanks, Thomas. So just in terms of the U.K., that did include about GBP 0.5 million of dual running costs at Grant Westfield regarding the depot consolidation, and Thomas will talk to that later on. And then in South Africa, that also included about GBP 0.5 million of additional costs that won't recur in H2 regarding a 4-week shutdown of the TAL manufacturing plant, which took into account the market conditions.

Thanks, James. And James will get into the numbers in a bit more detail shortly. If we can just switch to Slide 5, please. This is a really important piece in terms of understanding our ability to perform through the cycle. So apart from really exceptional management teams, and we have great people running our businesses, we've been really intentional about the kind of market and the market segments that we target. If you look at the graph on the left-hand side, that really talks to demand in the bathroom sector and around 80% of demand in bathrooms in the bathroom sector comes from RMI with the balance coming from new build. That can be 75-25, but it's predominantly RMI. And on the right-hand side, what we're really showing is that all of our market-leading brands operate in the mid-premium segment of that RMI market. So when you have a look at our performance and our ability to be less cyclical and also less impacted by what's going on in the markets. It's really to do with the fact that our core customer base is more resilient. A lot of those customers continue to spend through the cycle. And so having market-leading brands in that more resilient space and continuing to grow share in that more resilient mid-premium space is really the powerhouse behind our performance. I'm now going to ask James just to run through in a little bit more detail the numbers.

Yes. Thanks, Thomas. Good morning, everyone. So turning to Slide 7, on the income statement. Some of the key highlights here, H1 revenues totaled GBP 188.4 million. So that was 0.1% higher on a constant currency like-for-like basis. And like-for-like, meaning that the current year and the prior year comparator are adjusted for Johnson Tiles U.K. and Norcros Adhesives. In turn, reported underlying operating profit at GBP 19.7 million, was GBP 1.7 million below the prior year, and the reported return on sales for the group was 10.5%, and that was in line with the prior year. An exceptional cost of GBP 2.1 million was recognized in the period, and that largely was in relation to depot consolidation costs at Grant Westfield, and Thomas will talk to that later on. Acquisition and disposal costs primarily related to the previously disclosed non-cash loss on disposal of Johnson Tiles U.K. in May 2024 of GBP 21.4 million. So turning to Slide 8 and looking at the revenue and underlying operating profit bridges. Starting with the top left, first half total revenues decreased by GBP 13.2 million from last year with GBP 13.7 million of that reduction driven from portfolio development activities. And in total, as shown in the bottom left-hand chart, as Thomas earlier mentioned, overall group like-for-like constant currency revenue increased by 0.1%, and that was with the U.K. up 0.9% and South Africa down 1.7%. So now looking at the underlying operating profit charts on the right. Top right, underlying operating profit was GBP 19.7 million, and that was GBP 1.7 million below the prior year. And as I just mentioned, that reflected the removal of Johnson Tiles U.K. investment at Grant Westfield and a 4-week shutdown at the manufacturing site at Johnson Tiles in South Africa. And finally, on this slide, looking at the bottom right, underlying operating profit in the U.K. was GBP 17.8 million, GBP 0.9 million lower than the prior year, with the U.K. return on sales increasing from 13% to 13.6%, benefiting from the impact of disposing of Johnson Tiles U.K. Underlying operating profit in South Africa was GBP 0.8 million lower in the period at GBP 1.9 million. So moving on to the next slide, Slide #9, looking at earnings, dividends, and tax. Firstly, to note, the underlying effective tax rate was 22.6% in the period. Diluted earnings per share was GBP 14.1p. And as Thomas noted before, regarding the dividend, the Board declared an interim dividend of 3.5p per share, and that was an increase of GBP 0.1p from the prior year. So moving on to Slide #10 to look at the cash flow. The group generated an underlying operating cash flow of GBP 14.8 million in the period compared to GBP 27.4 million in the prior year, and this represented a conversion rate of 69% of underlying EBITDA and the reduction against last year reflecting an increase in working capital of GBP 9.6 million, with the increase in debtors, and that's largely due to the 26-week accounting period ending on Sunday, the 29th of September, compared to the standard payment date of the 30th of September being the last day of the month. CapEx in the period was GBP 4.4 million in the first half with investment in new product development and projects focused on further driving operational excellence. So turning to Slide #11, on the balance sheet. Net debt was GBP 44.9 million, and that excludes finance leases compared to net debt of GBP 37.3 million at March '24, and that in part reflects the investment in working capital in the period. I think, importantly, the balance sheet remains really strong and in good shape with leverage remaining low at around 1x underlying EBITDA. And as you can see on the right-hand chart, the pension scheme continues to be appropriately funded and well managed and remains in an accounting surplus of GBP 16.5 million at September '24. So turning to Slide 12 and just a reminder on the pension scheme. As you can see, we've come a long way. The chart in the top right corner shows the significant progress that has been made from an accounting deficit in 2017 of some GBP 63 million to an accounting surplus in the last 3 years in excess of GBP 15 million. And the last triennial actuarial valuation at April 21, that showed a deficit of GBP 36 million, resulting in additional Company contributions of GBP 3.8 million per annum plus CPI until 2027. And importantly, we now have the 2024 triennial actuarial valuation underway, and it's progressing well with the company and the scheme's trustee working constructively together. And we envisage reaching a conclusion on that early next year, and we are confident of making further progress. Thank you. And Thomas, back to you.

Thanks, James. And if we could move to Slide 14, please. So just a wrap again of our strategy, what we're doing and why we continue to grow. The first thing is we have a very successful and scalable platform. We have market-leading brands. I'll keep reiterating, we sell market-leading brands and not commodities. We operate in diversified products and channels, but predominantly mid-premium. We've got very strong in-house design and customer service capabilities that differentiate us. And we have the ability to grow both organically as we've demonstrated in H1 and also through M&A as we have done the last 10 years. It's important to note that there are significant opportunities to continue to develop and grow regardless of the market. We operate in large and fragmented markets. There are opportunities around sustainability and adaptive living as the population ages. And given our increased scale, we are able to leverage the synergies in our platform and also look to drive a more efficient business as we grow, so we grow more efficiently. The strategy, as I've spoken to, has 4 core drivers. They are all in play, and we are delivering against all 4 of those strategic pieces, and I will talk to 3 of them later. Our medium-term targets at the bottom of the page, we published at the Capital Markets Day. They are progressive targets, and we are confident that we will achieve these targets over the medium term. If we move to the next page, 15, please. On Page 15, we just wrap up on the 4 key drivers. I think James and I and our team, we have a very clear plan, and we're very focused on doing what we say. And we're just pleased to be able to again report progress against our plan. Under portfolio development, getting Johnson Tiles sold was a really key moment for us in our program and in our strategy that was handled well and completed to plan. So pleased with that. I think the other key thing to take from this slide, and we'll talk to these now are new product development and then the operational excellence piece where we have consolidated our warehousing logistics in the U.K. from 26 to 15 warehouses. And then I will just touch on our sustainable product development going forward. So if we could flick forward a couple of slides, Andy, and get to Slide #18, which is the organic growth slide. Slide 18. One more. That's the one. So just going back to the point about our ability to grow organically or through M&A. Bathroom furniture and sanitaryware is an area that we've been looking to make an acquisition for some time. We are very fussy in terms of what we buy and what we don't. But given that we haven't been able to find something in the near term, what we've done is decided to enter these 2 categories organically. We already do these 2 categories in our South African business. So we've leveraged off our South African business, invested in some design skills and launched a range of bathroom furniture called Cameo through our Vado business. This was launched in April 2024. It has been exceptionally well received, and we have made some really good early progress with early wins in key retail and spec accounts. It again demonstrates our ability to design and source product really well in-house. And it's probably worth noting that we have increased our nearshore sourcing a little bit in this range. But when you look at this picture, where Vado historically would have sold the taps and the showers. You can see the bathroom cabinets or furniture on the picture, the basins, the mirrors, the flush plates and the toilets. Those now all come from Vado and is the first of a number of bathroom ranges that we'll launch. Equally encouraging is the fact that we have Grant Westfield wall panels on the wall and a Merlin shower in the corner on the right-hand side, including the shower tray. So the ability to offer a full bathroom and a matched bathroom is increasingly becoming an important part of what we do at Norcros. So this will -- has grown well, will continue to grow. And again, it's just a good example of how we grow ahead of the market. If we could then skip along to Slide 20, please, which is just one more, that's it. And I'll just talk a little bit about how we've been making progress against our operational excellence objectives. Two major projects completed in H1, both of them completed ahead of schedule and really accurately implemented with minimum disruption to our customers. Project 1 at Vado saw us consolidate 5 warehouses down in Cheddar and Glastonbury into one state-of-the-art warehouse in Bridgewater. This project was not only about consolidation, but was really, really important in terms of our ability to bring in the new furniture and bathroom ranges. The sequencing of this project and execution of this project was outstanding and, again, best testament to the strength of the teams that run our businesses. Project 2, this is where we have this ability to leverage and learn from each other. And what this really saw was us move our Grant Westfield operating model to be more in line with what we do and have done at Merlin for many years. So Grant Westfield used to operate through a number of depots as opposed to our Merlin business, which is operated out of one warehouse in the U.K. Our Merlin business has developed a very strong capability in terms of moving what is a fragile large product, a shower enclosure, all over the U.K. with very, very strong last mile delivery capability. We are able now, through this project, we've moved Grant Westfield into the same distribution center using the same outbound logistics teams. So we've been able to exit a number of warehouses. And in doing so, not only do we have less space and we are also more capital light, but we are able to move stock around much more efficiently where it used to take us up to 4 moves to get stock to the final customer. It now takes us -- we move stock twice, once into the warehouse and once to the customer. Again, great collaboration between those 2 teams and superbly executed and the Grant Westfield order books reflect the improvement in our service levels, which I'm really pleased to share. Moving to the next slide. If we can just go 21, please, Slide 22. At our last presentation, we spoke about the launch of our sustainable NV electric shower. Today I'm going to move across back to Grant Westfield and talk about Nature Panel, which is the wall covering, you can see in the picture here. This is a cracking product that was launched again in May 2024, very strong penetration into the market. We've, in fact, had to bring in a second CNC machine to help us address the demand. And it's just another step of a very good product, but also a product that has really strong sustainability credentials and plays really well into some of the new build house standards that we're starting to see come into play. It's lightweight, easy to fit, and almost entirely recyclable. So you'll see a lot more of this kind of product coming through and driving strong organic growth in our business. So in summary, I think what we have, and you can have a look at Page 28 in your own time, we have a proven track record of performing through the cycle of growing organically ahead of the market. We remain very focused on the mid-premium RMI market. We have strong positions in house build. And when those turn and when the market turns, but we benefit on the house build side, but also on the RMI side. And when the market is not doing it particularly well, we continue to grow anyway because we've got strong organic growth levers. I'm really pleased with the progress in terms of implementing our strategy and our full year operating profit is expected to be in line with market expectations, which will demonstrate progress towards the medium-term progress that we spoke about earlier. So that's where we are at the moment. We have a great business. It's performing well. And thank you very, very much for your time and open for questions.

Great. Thank you, gentlemen. Very clear and very impressive, given the market challenges. Lots of questions in already. For anybody who hasn't submitted, please use the Q&A button and we'll get around to it. Right. Where else could we start but apart from South Africa, Thomas. So a couple of questions there. Could you talk a little bit more about your plans in the context of your mid-term 5-year strategy? What you've been up to? And also given the change in government and the national development plan, Norcros has always been very involved with local communities, et cetera. Just what's going on there in the bigger picture?

Well, I think a lot more encouraging than it was a year ago. We've had 6 months of no power interruptions. And if you recall, going back around a year ago now, in fact, were up to 12 hours a day of energy interruptions is pretty debilitating. What we've seen on the energy side is skills going back into the provider, deregulation allowing for private energy supply. And so although these kind of recoveries are never in a straight line, we might have small interruptions. I think we are through the worst. And you need infrastructure working for an economy to work. And our weighting in South Africa is more on the new build side than it is in the U.K., 40% in South Africa, 20% here. So it's really important that those things work for us. The new build cycle in South Africa kicks off in February-March each year after the summer holidays. And we probably get our first indication of what a market recovery might start looking like when that new build cycle kicks off. In saying that, we have been in the country since 1954. We have an outstanding management team who do an exceptional business, and they've done it again through a really tough market. We shouldn't forget that only 2 years ago, we were making GBP 8 million to GBP 9 million worth of EBIT there. And as the market recovers and although we're guiding to a gentle and rather than a V-shaped recovery in South Africa, we should see drop-through coming from that recovery. So encouraged by where it is now versus last year and also comfortable that we've got the team that's able to manage through.

And following on from that, there's another question, how you might compare and contrast consumer confidence. We're all sitting here in the U.K. and there've been many bumps through the year at the macro level. Is that recovering in South Africa yet? Or do you think it might take a little bit more time?

No, it definitely is recovering. But I think what we should just bear in mind is that interest rates are still up around 11% in South Africa. They're coming down slowly. I think this week, they came off 0.25%. So if you have a mortgage or you may have some other debt, I think those are the things you're going to address first. So we're hoping to see a continued improvement in the interest rate scenario. And we think that and the new build cycle together are the 2 things we're looking at, but people are definitely more positive. And I think the post-election stability certainly adds to that.

Maybe one for you, James. U.K. operating margin, up nicely, 13.6% without an exact number to a decimal point. How much further do you think that can be progressed in the next few years?

Yes. Good question. That's the reported margin at 13.6%. If you actually back out the Johnson Tiles revenue for the period, the legacy Johnson Tiles revenue, which was essentially nil profit, that is -- equates to about 14%. And then through the presentation, you might recall, there was about GBP 0.5 million of additional dual running costs at Grant Westfield. So if you back those out, we're well on the way to getting to 15% on a pro forma basis already. But do we think we can go in excess of 15% in the U.K.? I think so. I think we've got the levers to do so. The operational efficiency that we're driving with. And Thomas can come back to maybe the depot consolidation. But we're really thinking of how we can be more efficient and work smarter and drive that operating margin.

Yes. And I think to James' point, we have a number of businesses that are north of 15 already. So we have a proven model of getting there. We've divested of the businesses that we felt we couldn't get up to the targets we've set ourselves. And to James' point, if we just take the organic growth drivers of a fixed cost base or a like-for-like cost base, that helps that organic growth on the NPD side is quite often more aimed at now sustainable and more of the premium than mid-premium piece. So you've got a mix benefit coming through there as well. And as we've spoken about, a big focus, big medium-term focus, but doing very sensibly is as we grow, growing more efficiently in terms of our operating base. We're not going to do a classic private equity and bash a whole lot of warehouses together. As you've seen here, where it makes sense and where we can add value and do things more efficiently, we will invest in those areas. So I think across those 2 drivers just on their own, we should see a meaningful progress over the medium term.

Yes. But we might carry on, on that sort of cost control theme.

Yes.

And as you've just been saying or preempting the question, Thomas, there's one come in, how much more scope is there for warehouse or distribution consolidation? And it sounds like some scope, but only where it makes commercial sense.

100%, I think what we'd like to do is bed down these 2 projects. As I said, they were expertly planned and implemented. We're going to bed those down, take some learning from those, and then we'll look again. But I'll just reiterate, this is not about smashing and bashing stuff together for short-term cost benefit. Our real focus is on how do we move stock around better than anyone else from a customer service proposition side. And that's really what drove the Grant Westfield piece where it used to take 7 or 8 days to move stock around and now it can take 48 hours when we wanted to. And that talks to us as a wider business with Norcros. On M&A, when we buy stuff, it's not to take costs out, it's to grow it. So although we are conservative on costs and we watch those really closely, our focus is on profitable growth.

Yes. And both Vado and Grant Westfield consolidation do seem to have gone very well. I'm sure you've learned from the process. We just had a question. Was there any disruption to client flows of products, et cetera, through the process?

So what we did was 2 separate projects on the bigger and more complex one, which was the Grant Westfield Merlyn one, we ran dual running costs. So we kept both supply chains in place, and that's the 0.5 million James was referring to, to make absolutely sure. But interestingly, we were able to get the new supply chain and the new route to market into place ahead of schedule and we'll start benefit. So no interruption there. On the Vado side, also very, very well planned and executed. And I think back to the point, not only did we consolidate, we consolidated and launched a new range at the same time without any meaningful interruption at all. So really, really pleased with what those 2 teams were able to implement. It gives you confidence in terms of the go-forward and as we incrementally continue to drive improvements in that area.

All right. And changing direction slightly, looking at scale and buying power and negotiating power. We've got a question on global transport distribution. It seems to have been a bit of a constant through the year. So you better plan for it continuing. But maybe for you, James, what was the year-on-year impact of higher freight costs in the first half? And how might you see it being in the second half, which you need a very, very powerful crystal ball for? And then related to that, how is the cross-group collaboration helping in pricing negotiations?

Yes. Let me give a flavor of that. I know Thomas will probably want to jump in. But I think the first thing to say is that scale point is very important. It means you can come together as a group and liaise directly with the shipping companies like Maersk directly, which means we get more certainty and more reliability in terms of pricing. I think what we have seen is volatility in pricing again, but we're able to fix our prices because we have the scale and the right number of containers that we move with Maersk. So I think it's important. I think we don't have a crystal ball, but I think we're able to manage it a lot better than our competitors.

Yes. I think to add to that, I think, James has said it really well. It remains unstable. We're in sort of vision, probably 5.0 of freight rates spiking. But our scale versus a number of our competitors who are small and would not be able to do what we can do in terms of prebooking containers and also negotiating to a large extent on the freight rates. It should be noted that there's always surcharges around freight. So even if we've got a fixed price, there will be some variability. But we're able to manage that variability because, I mean, I think for a shipping line like Maersk or anybody else, having somebody of our scale and also us committing makes it easy for them to plan. So there's benefit both ways. And our customers have benefited from that in terms of us being able to offset some of the inflationary costs that we see locally more than externally, wages being one of them, for instance. But yes, the scale absolutely counts. And maybe just while we're on scale, Andy, if I can jump in and I think the strength of our balance sheet is huge importance in the current market. It helps us take share. Anybody signing a medium-term contract, be it a house builder or a big retailer, they need to know that we're going to keep their promises for them, that we're going to be there in terms of any after sales. And I think a lot of customers have seen over the last 4 or 5 years that the lowest price doesn't always mean it's the lowest cost at the end of the day. And we are picking up share where customers are prioritizing the strength of the suppliers' balance sheet. So I think that's just worth noting as well.

I think just to add to that, Thomas, and it's a good point that there have been failures in our industry over the last 6 to 9 months. And we know customers quite rightly monitor balance sheets, monitor credit ratings. Because they need to know that supplier is going to be around to honor their commitments and honor guarantees. So I think strength of balance sheet is an important factor.

Absolutely. It's not just being around to provide ongoing service. It's being around full stop that must be a concern at the moment. You briefly mentioned surcharges, Thomas, which you're now going to regret because we have a question on tariffs with the incoming U.S. President, much to nobody's surprise, making clear where they're going to fall. So we have a question, James, maybe first, how much of your products are actually sourced from China? And then how do you think these tariff rates might play out in relation to your activities?

I'm going to pass that one over to Thomas. I know he loves talking about Trump and tariffs and China supply chains.

I think the first thing to say, it's highly unpredictable. Even the best economists out there would be saying, we're not 100% sure what's the threat and what's going to happen. So I think we don't do a huge amount of business with the states, very, very little, in fact. So it's really in and around the impact of what he does to shipping routes, where containers are, how those might reroute. But again, our scale helps us, the kind of partners we deal with help us. We have a -- we buy on the U.K. side, around 50% of what we do from China. We have a hugely strong team in China. We have excellent partners in China who -- it's no longer just a low-cost grabby sourcing destination, some of the best factories in the world are in China. And so we will continue to source from China. Ultimately, if somehow Trump wanted to put tariffs on the whole of China for the whole of the world, well, that's going to impact everybody. So I just don't see that happening. I think we're going to see strong negotiations upfront, big threats, maybe some small moves on tariffs. But I think we've shown through COVID, through all these shipping crises that we've continued to perform. And I think the fact that we sell brands that people want to need into the mid-premium segment will work for us. So let's wait and see, but we've got a very resilient model and very resilient and loyal supply base.

All right. Now moving back home, I suppose, a little bit. Johnson Tiles U.K. and surplus land, what are your plans for this? Are you just going to sell it or try and get planning permissions in outline first?

Look, we certainly don't want to sit and we're not a landholder. So I think we said it at the time, we will sensibly look at a plan to dispose of that land going forward.

Good. And on the pension and the triennial pension review, James, do you think more crystal balls, it will result in a reduced deficit compared to 2021? And will it reduce in DB contributions going forward?

Yes. I think I'd say the pension valuation and discussions, negotiations are going well. I think we are confident of further progress. I said that result will be out, hopefully, calendar Q1 2025. And I think maybe to answer that directly, I think Thomas and I would be disappointed if there wasn't a reduction in cash contributions, but let's see where we get to in the next couple of months.

Not too long to wait. And another slightly deeper financial question, James. Can you say what your underlying like-for-like operating profit was in H1 and also what the associate like-for-like operating profit growth or fall was in H1?

Yes. I think if you go back to, I can't remember what slide that was, Thomas, maybe you could just -- I think it was Slide 7 with the P&L on it. As I said, there's about GBP 0.5 million of non-recurring Grant Westfield costs in there that won't reoccur in H2. There's about GBP 0.5 million regarding Johnson Tiles in South Africa regarding a 4-week shutdown. And then there's a little bit of legacy Johnson Tiles profit from H1 in the prior year. So broadly, if you wrap all that together, the profitability in H1 this year is quite similar to the profitability last year on an underlying like-for-like basis.

Now, Thomas, you discussed new build and RMI. We have a question, how easy is it for you to pivot? Should the new housebuilding market suddenly reignite, which is not on the immediate horizon, I would say, at the moment? I don't want to give you, the answer for you, but I always thought it's not a question of pivoting that you're very strong in both areas.

100%, we don't need to pivot. And I think the other thing that's worth noting is we actively invest in holding the right kind of stock levels. So if demand goes up, we don't end up scrambling. We have very, very close relationships with the housebuilders who talk to us really early in the process. So there's no pivot, no disruption, no additional costs. It's just additional revenue off an existing cost base.

Good to hear. Good to hear. James, we can't let you escape without talking about national insurance in the U.K. So we have a question. Do any of your client contracts allow for immediate pass-through? Or is it just a process of sensible negotiation?

Yes. Maybe looking at it slightly bigger picture than that. I think the national insurance piece wasn't helpful, but it's not a material impact for us. It's less than GBP 1 million. So we'll deal with that alongside other inflationary pressures as we go into 2025, and we'll handle that accordingly.

Yes. Very good. Maybe, Thomas, one for you. You're taking market share. That's obviously good. Is there anybody in particular it's coming from? Or is it more across the board?

No, it's across the board. It's targeted, I think if you remember the Capital Markets Day, we had that grid of the top 20 customers and our business is running down the side. We've got a clear gap analysis and our ability to deliver really strong NPD and really high and consistent service levels is what's behind driving that. You then add on, as I said, the cross-selling, the service levels and then the improved mix as well, really helpful on the organic side as a total really.

And then the sort of other side of that coin, is there a large client that you are allowed to name or whatever that you're particularly pleased with the progress that the group has been making with them through the course of 2024?

I wouldn't really want to call that out on this call, but we have a very, very strong customer base. We are quite deliberate about who we do business with. And I just think that any business that is really customer-focused, got high service levels and that's focused on the customer, not only costs really at the end of the day, those businesses tend to win. So a strong service model is imperative in a tough market.

James, you've got lots of hats. You used to have the M&A, still probably do. So you get all the crystal ball questions, and this can't be a precise timing. But the difficulties, the market must be presenting opportunities that you will look at carefully to make sure, again, they only fit with the culture and ambition of the group. But a question, all things being equal, would you be hopeful of announcing a deal in the second half?

I think the M&A pipeline remains well developed. We look at a lot of stuff, but we are very selective. Interestingly, I think coming back to that scale point, we're able to maybe do things organically that we weren't able to do a few years ago. So we don't necessarily have to wait for a great deal to come past our doors to execute on something that's going to drive us forward strategically. I think who knows when timing is on M&A. I could say it's not going to happen in H2 and then 3 come along at once or vice-versa. So we're not deal junkies. We're not going to do deals for deal's sake, but we are looking at lots of really interesting assets that we'll execute if it makes commercial sense.

That sounds very sensible. All right. Nearly done. Last one, which you've already answered, Thomas, but it might be a good way to sum up. The question was going to be your Capital Markets Day was only a few months ago, but we have seen quite a few wars around the world and elections and changes of government. Is your strategic plan unchanged along with the financial targets that you set then to which you've already said yes. But maybe you could say a little bit more about why you're so confident that the broader markets don't have to improve for Norcros to make these ambitious gains?

Yes. I think just reiterating our medium-term growth targets. And I think that if you take the Capital Markets presentation and what we've gone -- what we presented in H1, you'll see really strong implementation of what we call in-play growth drivers, both in terms of organic share growth and also in terms of our operating margin. So we have a clear plan. We really have an exceptional teams of people running our businesses with a proven track record. So we're doing stuff that we know how to do into a market that's more resilient. We've got the potential upside of any recovery to come. But our full year numbers don't have any kind of material recovery baked into those. So any sort of market leverage that comes through would be on the upside for us.

Great. Well, thank you very much to our audience for their attention and a very good range of questions. And you will get a brief feedback form, which is always welcomed by the company, if you can share your thoughts there. A quick reminder that this presentation has been recorded, so it will be up on the equity development website quite soon, where you will also find copious research notes with estimates, et cetera, et cetera. And then last, certainly not least, thank you to James and Thomas. A very good presentation, very good progress with the group, and we wish you all the best for extending that progress.

Thanks very much. Thanks, everybody.

Thank you.

Appreciate your time.